Technical Efficiency of Manufacturing Firms in Cameroon: Sources and Determinants

Abstract

The primary objective of this study is to analyze the determinants of efficiency in manufacturing firms in Cameroon. The study used a stochastic frontier model employing RPED data of 319 firms from different manufacturing industries. The data are micro-level which is the most adequate type of data used in the estimation of these models. The model used is that outlined by Battese and Coelli (1995) which determines the causes of inefficiency in the manufacturing sector in Cameroon. The estimates of the stochastic production frontier with inefficiency effects model indicates that firms in Cameroon exhibit various degrees of technical inefficiency for the sample of firms considered. The results show that firm size plays an important role in explaining technical efficiency in the sub-sector of food processing. However, large firms reduce technical inefficiency levels of firms in all the sub sectors. Another important variable which has an effect in determining technical efficiency level is the foreign ownership variable. It is significant in food processing, wood processing, textile and garments as well as in the overall sample. Hence, it increases technical efficiency in all the sub-sectors. Finally, since an increase in age of firms leads to a reduction in efficiency levels in manufacturing firms, policies should be adopted to replace the existing capital in the large firms.